Fighting the Purges at Financial Regulators

There’s one lubricant that keeps the administrative cogs of the federal government from jamming: independence. The Trump administration has gone out of its way to slow the gears of critical agencies and instead has chosen to pour sand in those gears at every possible step.

Americans for Financial Reform and 30 other public interest organizations sounded the alarm on the executive branch’s efforts to undermine the independence of a constellation of agencies that keep the country running. From the Consumer Financial Protection Bureau (CFPB), once an ardent defender of everyday people, to the Securities and Exchange Commission (SEC), once a bulwark for small-investor protection and against crypto instability, President Trump and his allies now have countless federal institutions under their control. Their unlawful purges and overreaching executive orders have paved the way for unilateral control and only seek to empower the richest and most powerful Wall Street actors.

The advocates wrote:

These disruptive removals leave significant gaps in leadership at the agencies and have targeted leaders committed to advancing the public interest and taking on powerful corporate interests when it is necessary to do so. All of these expulsions are extraordinary direct blows to the independence of these agencies that threaten to undermine key democratic pillars of U.S. society, fair and effective financial oversight, and economic stability.

The administration's actions are dramatically compromising the ability of these agencies to provide the independence necessary to oversee the financial industry without fear or favor. The expanding ramifications of these damaging decisions will be widespread and long-lasting.

Look no further than the ongoing assault against the CFPB. The Republican majority seems eager to defang the agency and its capabilities to collect crucial information, as others seek to zero out its budget entirely, a move that AFR warns would prevent the Bureau from protecting people from fraud and harm. House Appropriations Committee Ranking Member Rosa DeLauro (CT) accused Trump-appointee Vought of envisioning the administration as having a “King unbound by laws, who rules by decree, who accepts lavish gifts from foreign governments, who fills public offices with ultrawealthy and political allies, and who expels opposition and crushes dissent.”

Eric Halperin, a former CFPB director of enforcement, says that Trump has effectively turned the agency into the Corporate Financial Protection Bureau, putting banks, tech companies, and financial institutions before people. There’s a backlog of over 16,000 consumer complaints. Some consumer segments, like military servicemembers, are seeing the number of their complaints skyrocket as the CFPB shutters some of its operations.

This machine needs oil to run smoothly and effective. The Trump administration only hopes to jam it.

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BANKING AND FINANCIAL STABILITY: Capital Rules — Risky, Risky — No on Bowman — Economic Well-Being for All — Wells Fargo — Stressed Out
CONSUMER: The Student Loan Credit Crash — Closing Off Open Banking — Buy Now, Pain Later — Gone in a Snap
CAPITAL MARKETS: Stand FIRM Against FIRM — A Buybacks Tax
PRIVATE MARKETS: Beware PE — Private Credit — Financial Engineering — PE and Your Retirement — PE and Your Health — Class Action Cashouts — Whose Shoes?
CRYPTO: Trumped-Up Crypto — The Next Great Financial Crisis — Unstablecoins — Crypto Uncertainty — Don’t Retire on Crypto — ETFs?
HOUSING: The Insurance Crisis
CLIMATE AND FINANCE: Black Neighborhoods Underwater — Get Net-Zero

Feedback? Reach us at afrnews@ourfinancialsecurity.org

BANKING AND FINANCIAL STABILITY

Capital Rules.

Harvard’s Wenxin Du warns that recent attempts to weaken post-2008 capital requirements — the supplementary leverage ratio (SLR), which prompted banks to maintain a certain-sized cushion against systemic shocks — would create new risk and empower leveraged hedge funds to make riskier bets. Du questions how much watering down the SLR rules would even help the system overall, writing that the SLR’s effect on the broker-dealers that facilitate Treasury trades is limited to begin with. The Trump administration seems determined to water down capital rules anyway.

Risky, Risky.

Two years ago, when Silicon Valley Bank collapsed under the weight of deregulation and its own risk-taking gone wrong, the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve invoked the systemic risk exception to cover uninsured deposits. Normally, the FDIC guarantees each depositor at an institution up to $250,000 in coverage in case something goes wrong. The system risk exception allows them to blast past that; in the case of SVB, that meant a total price tag of at least $16 billion.

Rep. Al Green (D-TX) has introduced the Systemic Risk Authority Transparency Act, which would require banking agencies to report any future uses of the systemic risk exception. AFR calls the exception an excuse to “reward too-big-to-fail banks that pursue highly risky business strategies that can lead to bank failures that harm depositors and the economy” and supports Green’s bill to add needed transparency and accountability to the resolution process of failed insured depository institutions.

No on Bowman.

AFR and five other public interest organizations urged the Senate to oppose the nomination of Fed Governor Michelle Bowman to serve as Vice Chair for Supervision, citing her record of opposing critical safeguards, weakening oversight, and siding with some of the country’s largest banks. The nomination was confirmed by the Senate on a party line vote.

Economic Well-Being for All.

Patricia McCoy of Boston College Law School unveiled a new book, Sharing Risk: The Path to Economic Well-Being for All, that dives into how the financial system could change to benefit everyone. Citing that the vast majority of U.S. households are in financially precarious positions and that safety nets to catch those in a debt downfall aren’t strong enough, McCoy explores how arrangements across income security, housing, health insurance and college education could spread the risk more evenly to everyone and help families out of difficult financial positions.

McCoy has also launched a Substack, Now More Than Ever, that plans to build on the ideas in her book.

Wells Fargo.

Wells Fargo, the too-big-to-fail megabank that just a few years ago opened millions of fake accounts for its customers without their consent, is now free to grow even bigger and badder. After the scandal, and a litany of other abuses (which you can read about in AFR’s Misdeeds and Missteps of a Megabank), federal regulators imposed an asset cap on the bank, meaning it wasn’t allowed to grow beyond a certain size. Now, seven years later, the Fed has removed the penalty, which effectively lifts the guardrails on Well’s business practices. Already, the Committee for Better Banks has documented increasing pressure on workers to engage in high-pressure sales pitches, the exact problem that led to the fake account scandal.

Rep. Maxine Waters (D-CA), ranking member of House Financial, and Sen. Elizabeth Warren (D-MA), ranking member of Senate Banking, want the Fed to reverse its “embarrassing and unwarranted” decision to undo the penalty.

Stressed Out.

The banking industry’s lawsuit against the Federal Reserve over its annual stress testing framework is now on pause through August, following the Fed’s announcement that it will give in to a key industry demand by revamping key aspects of the process. The temporary stay gives the central bank time to revisit the stress tests, a move welcomed by industry plaintiffs including the Bank Policy Institute, American Bankers Association, and U.S. Chamber of Commerce. In a joint statement, they praised the Fed’s “good-faith effort to align the stress testing regime with the law,” cheering for a pause to water down the stress testing ahead of the next testing cycle. Weaker stress tests could conceal institutional fragility or vulnerability, exactly the things stress testing was intended to root out to prevent instability in the financial system.

CONSUMER

The Student Loan Credit Crash.

The return of federal student loan payments in 2025 has triggered a financial crisis for millions, with over 2.2 million borrowers seeing their credit scores drop by more than 100 points due to missed or delinquent payments, often because they didn’t realize payments had resumed. At the same time, the nomination of Joshua Divine — a key architect behind the legal challenge that killed Biden’s student debt cancellation plan — to a lifetime federal judgeship highlights the Trump administration’s clear hostility toward borrower protections.

Closing Off Open Banking.

The Trump administration’s CFPB has moved to strike down a key Biden-era open banking rule designed to give consumers more control over their financial data. The rule, rooted in Section 1033 of the Dodd-Frank Act, would have required banks and fintechs to honor customers' requests to share their data with competing services—an attempt to level the playing field and boost competition. But traditional banks sued, and now the CFPB has sided with them, calling the rule unlawful. Critics, including fintech advocates, argue the reversal is a gift to Wall Street aimed at restricting consumer choice and stifling innovation in digital finance.

Buy Now, Pain Later.

The Center for Responsible Lending calls for rules to push Buy Now, Pay Later companies — the ones like Afterpay or Klarna that allow users to split big purchases into several, smaller installments — to perform ability-to-repay tests. These assessments would help determine whether a consumer would be able to pay back a new loan product, and prevent companies from trapping people in an accumulation of invisible, cascading debt. CRL points to the late fees, overdraft fees, convenience fees and other junk fees that can quickly pile up.

Indeed, the Associated Press reports that a bigger share of Klarna customers are falling behind on short-term loan repayments, at the same time that more consumers are signing on to BNPL plans. And, recently, the CFPB rescinded a Biden-era regulation that would have treated them more like credit card companies. Meanwhile, the Kansas City Fed found that the people who are more likely to use BNPL are also more likely to already be facing financial constraints compared to nonusers.

And: Seeing the federal government’s backtrack on BNPL, New York state plans to better regulate the industry with a slate of rules to protect consumers. The provisions will enshrine a right to refunds and implement a requirement for providers to have better processes for resolving consumer disputes.

Said AFR’s Christine Chen Zinner: “The big concern is, customers are lured into buy now pay later loans, mistakenly thinking that there aren’t any risks involved… If the BNPL product is tied to your bank account or credit card, how will it also, potentially, cause you to have to pay overdraft fees? Or late fees for credit cards?”

Gone in a Snap.

In late May, the CFPB wiped away a lawsuit that its former leadership levied against a lease-to-own finance company, Snap Finance. During the Biden administration, the agency alleged that Snap tricked customers into expensive financing arrangements and bullied borrowers using false threats.

CAPITAL MARKETS

Stand Firm Against FIRM.

AFR led two letters to Congress against the FIRM Act, a bill that would force bank regulators to ignore reputational risk when assessing a bank’s safety and soundness. Reputational risk considerations have traditionally allowed banks and bank watchdogs to stamp out illegal financial activities before they escalate. The FIRM Act would kick the door to money laundering, financial fraud, and national security threats wide open, ultimately putting peoples’ savings and the financial system at risk. Crypto firms and their allies in Congress have been lobbying hard for the law, co-opting civil rights language around so-called “debanking,” despite the fact that this bill offers no solutions to the real problems that unbanked and underbanked populations face due to banking discrimination.

A Buybacks Tax.

When a company purchases some of its own shares, that’s a stock buyback. Taxing buybacks would raise nearly $200 billion for critical programs — programs that Congress is trying to cut in the big, brutal bill. Corporations have historically broken their promises to use tax breaks to increase worker pay, instead diverting resources away from it and other productive investments towards stock buybacks, which pad executives’ pockets and deepen racial and wealth inequality. In 2022, the Inflation Reduction Act tacked on a 1-percent tax. The proposed Stock Buyback Accountability Act would raise it to four percent, encouraging companies to invest in their workers and innovation instead of in a gimmick to increase their share price in the short term.

PRIVATE MARKETS

Beware PE.

Feel free to judge these books by their bold covers: The Wall Street Journal highlights four books that expose how private equity plunders, pillages and increases inequality.

Even the managers of enormous pools of capital are worried. Sheikh Saoud Salem Al-Sabah, the managing director of Kuwait’s $1 trillion sovereign wealth fund, said that the “clock is ticking” for private equity. The warning comes amid the industry’s difficulty flipping their companies and returning money to their investors, while some institutional investors, like university endowments, seek to offload their private equity allocations. Already, private equity firms are looking to small retail investors and retirement accounts as a potential source of new investors where they could dump their floundering assets.

Private Credit.

Shadow banks — nonbank financial actors, especially private equity and hedge funds — are making more private loans directly to corporations, while traditional banks are making fewer. Instead, banks are lending to shadow banks, which then extend risky, opaque loans to companies. This $1 trillion-plus private credit market creates more leverage in the broader economy, opening the door for smaller tremors to cause greater losses, Alphaville explains.

Related: Credit rating agencies can’t figure out how to score insurance companies that have private credit investments. A now-withdrawn study found that smaller agencies gave better scores to private credit investments than larger, “more established” ones.

Said one analyst: “There’s a build-up of risk in the insurance industry and also potentially in the collateralized loan sector that is not being properly monitored…There are cracks in the foundation of the current SEC-regulated credit rating industry.”

Financial Engineering.

Already used to wringing blood from stone to cash out their investors, more private equity firms have turned to sketchy financial products. They’re using collateralized fund obligations (CFOs), in which they chop up their portfolios into bonds, then use them as collateral for quick and dirty loans. Insurance companies have been buying into the risky fad.

It’s similar to the financial engineering that sparked the 2008 global financial crisis, said University of Oxford’s Ludovic Phalippou: “You’re taking illiquid, opaque assets, slicing them up, and selling tranches with theoretical diversification and little transparency.”

Firms are also trying out dividend recapitalizations — dividend payouts financed by loans — to pay their shareholders. Some investors feel like these are “manufactured” distributions that don’t reflect any actual value creation and that can add considerable amounts of debt to the companies, similarly to PE’s many other financial engineering schemes.

All the while, the industry is keen to use Internal Rate of Return (IRR) to describe their funds’ performance, a measure that oversells how much firms plan to make based on overzealous assumptions. Phalippou explains: “The consequences are real, as people are often presented these numbers as actual rates of return, and frequently believe them. This distorts the decisions of private equity firms.”

PE and Your Retirement.

The Trump administration is eying a directive that would pave the way for 401(k)s to invest in private equity, even amid the PE industry’s difficulty in getting money to repay their investors. Pensions and university endowments have grown more skeptical about PE. Some of the latter are even trying to decrease their stakes. Bloomberg suggests that allowing retirement accounts to buy into PE would come with “greater risk and higher fees that may leave retirement plan administrators vulnerable to lawsuits.”

PE and Your Health.

The growing influence of private equity in healthcare and the rise of medical credit cards are raising significant concerns about patient welfare and financial exploitation. By 2021, private equity firms owned 14 percent of U.S. freestanding psychiatric hospitals — a 76-percent increase from 2013. These facilities often operate with lower staffing ratios, particularly among registered nurses and social workers, potentially impacting patient care

Simultaneously, the proliferation of medical credit cards, such as CareCredit, is leading patients into financial traps. These cards are frequently offered during medical visits, sometimes without fully explaining the terms. Patients are enticed by promises of interest-free periods, but if balances aren't paid in full within that timeframe, deferred interest can accrue, resulting in unexpected and burdensome debt.

Class Action Cashouts.

Private equity-owned companies are facing growing criticism for quietly pocketing class action settlement funds meant for consumers. A Forbes investigation found that some firms use legal loopholes and digital payment systems to make it harder for people to claim their share—then keep the leftover money for themselves. This raises serious concerns about transparency and fairness, fueling demands for stronger oversight to ensure that consumers, not corporate owners, benefit from these legal settlements.

Whose Shoes?

In its takeover of the Skechers, private equity firm 3G Capital test-drove a roundabout way of getting normal, noninstitutional investors into putting their money in PE. After the buyout, in an “unprecedented” arrangement, 3G allowed the shoe store’s existing shareholders to exchange their stock for a mix of cash and a stake in the now-private company. The equity can’t be sold without the firm’s permission, and it lacks the normal rights and guaranteed dividends that one might expect from standard public stock.

CRYPTO

Trumped-Up Crypto.

Patrick Woodall, managing director for policy at Americans for Financial Reform, emphasized the need for stringent crypto regulatory measures in his Los Angeles Times op-ed:

To the delight of Silicon Valley, Big Tech and Wall Street, within the next week or two the Senate appears poised to approve the GENIUS Act, a law that would give legal blessing to stablecoins…

Trump himself is now a crypto kingpin. Selling access to the president via Trump’s memecoin, a collector token, has rightly drawn scathing criticism. But Trump’s family vehicle, World Liberty Financial, has launched a stablecoin that may be vulnerable to foreign grift. A firm backed by the Abu Dhabi government is buying $2 billion worth of the token. And late last week, the Securities and Exchange Commission dropped a case against Binance, a cryptocurrency exchange that in 2023 admitted it turned a blind eye to money laundering and sanctions violations, days after Binance listed Trump’s stablecoin for trading…

Today, Congress cannot simply write law as gauzy guidance; it must provide detailed and binding directives that force the regulators to actually do their jobs.

He warned that without explicit safeguards, the current administration's regulatory bodies, influenced by industry interests, may fail to implement necessary protections, thereby compromising the financial system's integrity

Related: One of Trump’s economic aides, Kevin Hassett, disclosed that he had a stake of at least $1 million in the crypto exchange Coinbase.

The Next Great Financial Crisis.

The 2023 collapse of Silicon Valley Bank exposed deep vulnerabilities in both traditional finance and the crypto market. A rapid bank run and losses on long-term securities triggered the failure, disrupting tech startups and shaking confidence in institutions tied to the sector. The shock rippled into crypto, briefly destabilizing major stablecoins like USDC, but the market eventually rebounded. The crisis made one thing clear: without stronger oversight and risk regulation, the growing entanglement between digital assets and conventional banking could threaten the broader financial system.

Unstablecoins.

Even as the lawmakers and big banks deliberate on how to bake stablecoins — still-risky crypto tokens whose values are ostensibly tied to a real-world asset (except in the disastrous cases when they are not) — into the broader financial system, experts are wary of the possible fallout.

Right now, the GENIUS Act, which seeks to incorporate stablecoins into mainstream finance, is inching its way through the Senate. But it doesn’t take a genius to see that it’s flawed and skews heavily in favor of crypto grifters — notably Trump — with limited protections for everyday people. Brooksley Born, former chair of the Commodity Futures Trading Commission, and MIT’s Simon Johnson say the bill threatens to repeat the mistakes of the past. The authors likened it to the Commodity Futures Modernization Act (CFMA), which they say contributed to the 2008 financial crisis:

With regard to systemic risk, the bill as drafted does not effectively deal with the inherent risk of stablecoin runs and prevents regulators from prescribing strong capital, liquidity and other safeguards…As currently drafted, the GENIUS bill paves another road to financial self-destruction that will undermine the American and global economy.”

George Washington University’s Arthur Wilmarth called on Congress to reject the Act, urging them to instead pass legislation requiring all stablecoin issuers be FDIC-insured banks.

Stablecoins are basically bank deposits, writes the Financial Times’ Robert Armstrong, even if GENIUS tries to suggest that they’re not. But, says Armstrong, a provision that specifies that stablecoins can’t pay out interest or yield acts as a “handout to the crypto industry,” since it effectively lets them take on deposit customers without having to pay them back. And since people can make a run on bank deposits, they could likely make a run on stablecoin reserves too. A financial crisis (like with Silicon Valley Bank), he posits, could be triggered by stablecoins, and necessitate a public bailout (again).

Crypto Uncertainty.

Meanwhile, another crypto bill is trying to escape House Financial Services. French Hill’s crypto market structure bill, the Digital Asset Market Clarity Act of 2025, would split regulatory authority over digital assets between the SEC and the Commodity Futures Trading Commission (CFTC). Committee Democrats have asked for more time to negotiate changes.

The North American Securities Administrators Association (NASAA), an organization of state regulators, said that lawmakers could easily put an end to jurisdictional debates between the two agencies by placing investment contract assets under the purview of securities regulators. In the past, NASAA has previously urged strong crypto asset rules that protect investors, spur disclosures, create exemptive frameworks instead of exclusions by jurisdiction, and preserve the power of states to do their anti-fraud work.

Don’t Retire On Crypto.

In 2022, the Department of Labor discouraged money managers from subjecting people’s 401(k)s to cryptocurrency options. This month, the Trump administration reversed the release, allowing risky crypto assets to invade retirement plans.

ETFs?

REX Financial and Osprey Funds, two firms that deal in exchange-traded funds, are trying to offer people access to investment vehicles that would allow them to use their own Ether and Solana crypto tokens to help validate transactions on the blockchain — a process called staking. The SEC isn’t sure what to make of the proposal, which it briefly greenlit and then promptly objected to. Some agency staffers warned that the REX-Osprey products may not qualify as investment companies, even though ETFs that make money from staking “may start to resemble traditional investment companies,” said one third-party attorney.

SEC Commissioner Caroline Crenshaw called into question her agency’s wobbling stance on whether or not to apply securities laws to crypto assets, writing in a memo that it “thwart[s] any meaningful attempt to apply a coherent regime to crypto assets and rewarding a maximally aggressive approach to entering our markets.”

HOUSING

The Insurance Crisis.

The New Republic raises the alarm on recent Trump administration decisions that will likely cause people to have to pay more for insurance. Insurance companies set their prices based on data collected in real time by federal agencies, like the National Oceanic and Atmospheric Administration (NOAA) and the National Aeronautics and Space Administration (NASA), with their fleets of satellites, buoys, balloons, aircrafts, and their leagues of researchers. But budget cuts to NOAA, NASA, and other agencies may push insurance companies to use private data, which they have signaled may cause them to raise premium costs.

The rising cost of insurance is already pushing people out; an earlier report from the Consumer Federation of America found that 6.1 million homes were uninsured. The Insurance Fairness Project, in a special report, tracked how this growing insurance crisis was “steeply escalating” in the Southeast United States, accelerated by the insurance industry. The IFP points to rate and premium increases, market exits and policy cancellations, concealing profits and denial of claims.

CLIMATE and FINANCE

Black Neighborhoods Underwater.

The richest 10 percent are responsible for a staggering 65 percent of global warming emissions, yet it’s Black communities who bear the brunt of climate catastrophe. From wildfires in Los Angeles to deadly tornadoes in the South, recent extreme weather events have disproportionately devastated Black neighborhoods, communities that contributed the least to the climate crisis. This stark imbalance reveals the deep racial inequities at the heart of environmental harm, where wealth and pollution are concentrated at the top, but the consequences fall hardest on those with the fewest resources to recover.

Get Net-Zero.

New York City is demanding that asset managers overseeing its $300 billion pension funds, including giants like BlackRock, submit credible net-zero emissions plans by June 30, 2025 or risk losing the city’s business. Comptroller Brad Lander emphasized that firms must show real progress in cutting emissions across their portfolios, not just vague promises. This move builds on the city’s $4 billion fossil fuel divestment and aims to use financial leverage to drive systemic decarbonization, signaling NYC’s ongoing commitment to climate accountability despite federal rollbacks.

Consumers Given Hail.

The Chicago Tribune cited AFR and other groups’ call for insurers to stop underwriting oil and gas projects and investing in fossil fuels, in its story about a hailstorm that caused predatory contractors to crawl out of the woodwork.